MOSCOW/LONDON, Feb 14 (Reuters) - Doubters have long said it
would make no sense to attempt a mega-merger of Russia's top
gold miners - the country is too big, its reserves too far
flung, the politics too tricky.

But with billionaire Mikhail Prokhorov quitting Russia's
largest precious metal miner Polyus, talk has turned to
how 40 percent shareholder Suleiman Kerimov could forge a deal
with Polymetal, the silver miner he once owned, to
create one of the world's largest gold companies.

The prize would certainly be huge: A merged company would be
worth around $17 billion and could help Russia break into the
world's top three gold producers by mid-decade. It could also be
first in line to develop the country's untapped deposits such as
Siberia's Sukhoi Log, one of the world's largest virgin gold
deposits which is likely to be put up for tender soon.

Kerimov is seen as equal to the task. An ambitious and
daring dealmaker, he led a party of investors that took over
potash producer Uralkali in 2010 and merged it with
rival Silvinit in a $24 billion deal.

Observers say he is unlikely to pass up the opportunity to
deal with the new owners of Prokhorov's 38 percent stake to
combine Polyus' huge reserves with their management know-how.

"He's a businessman and a real go-getter so I'd assume he'd
have something in the back of his mind to do with Polyus, not
sit still," said one Russian gold industry executive who
declined to be named. "Having one management with a large
Russian gold company makes a lot of sense."

Kerimov, who has connections to the Kremlin, owned Polymetal
between 2005 and 2008 and invested with Polymetal shareholder
Alexander Nesis in Uralkali.

However a source with knowledge of Kerimov's thinking said
he may not interested in a merger. Numerous barriers stand in
the way, and the doubters could still be right.

HURDLES

While the change of ownership at Polyus is fuelling merger
talk, it could also be a hurdle to any wider tie-up.

Prokhorov's Onexim holding company is expected to sell its
$4 billion stake to retail boss Zelimkhan Mutsoyev, who also
joined Kerimov as a co-investor in Uralkali, and to fruit juice
magnate Gavriil Yushvayev.

But the sale needs approval from the UK Takeover Panel,
which is expected to rule in the next few weeks. At issue is
whether the new owners are working together or with Kerimov, as
opposed to operating individually, sources with direct knowledge
of the sale procedure have said. If they are deemed to be
working in concert that could force them to make an offer to buy
out minorities which could scupper the sale.

Nafta said in September it was in talks with one potential
buyer of Onexim's stake with a view to providing financial
support. Analysts have speculated that Kerimov may be involved
in the transaction or financing it. However a source with
knowledge of the circumstances of the stake sale said that Nafta
was not now involved in the process.

A Plan B could see the stake buyers make an offer based on
the share price's six month average: 205 pence per share, said
Alfa Bank analyst Barry Ehrlich. That looks unattractive to
minority investors, given merger talk has boosted Polyus shares
14 percent since the end of January. They now trade around 226p.

Should Prokhorov's buyers instead take on debt to pay for
the stake, Polyus could end up with less cash to spend on a
potential merger given the need for buyers to pay off that debt.

"(A merger) isn't consistent with the idea of a leveraged
transaction cutting down Polyus' scale, shedding assets and
milking the company for dividends," said Alfa's Ehrlich.

MEGA-DEALS LOSE CHARM

More fundamentally, mining mega-deals have lost their charm
for investors who have seen several destroy value and lead to
billions of dollars of writedowns this year at big miners
including Rio Tinto and Barrick Gold .

The latter, the world's largest gold miner, booked a $3.8
billion impairment charge to write down the value of its Lumwana
copper mine, acquired through its C$7.3 billion takeover of
Equinox Minerals in 2011.

There's also the issue that Polyus and Polymetal's assets
are thousands of kilometres apart, spread over empty tracts of
the largest country in the world. "They are far apart. There's
no synergy," said one gold investor.

Another sticking point could be the value put on Polyus'
vast Natalka gold mine project in Russia's far east. Polyus has
said it expects to start commissioning a processing plant by the
end of 2013 but a source close to Polymetal said that company
expects the project to take longer to set up and come on line.

The biggest hurdle, as that of so many proposed mergers,
would be ownership. A share deal could leave Polymetal's main
shareholders overshadowed by Kerimov and his partners, while the
lack of liquidity could make it tough for them to sell out.

"The strategic shareholders of Polymetal...will have far
less control of the company," said Ehrlich. "It would be an exit
into a Kerimov-controlled company they may never exit from."